Model of the Future – Freedom of Assembly

LeeSar adds custom-pack production to self-distribution and self-contracting.By Linda Alter

Eight years ago, the desire to totally control their facilities’ costs led CEOs at Southwest Florida’s Lee Memorial Health System and Sarasota Memorial Health Care System to pursue self-contracting and self-distribution. The result was LeeSar, a state-of-the-art, regional healthcare supply chain management company; and Cooperative Services of Florida, a buying co-op for consumable supplies and capital equipment.

Now, the IDNs have taken another step toward controlling its own destiny; it is building its own custom sterile packs. “We do not want to put the destiny of our costs into a third party’s hands,” says Bob Simpson, LeeSar president.

Self-contracting and self-distribution
Cooperative Services of Florida changed the way purchasing was done for the two IDNs, which have a combined five hospitals to supply. The idea was to seek input from end users prior to negotiating with manufacturers. Although GPOs had routinely done this on a large scale, many local healthcare organizations had not, says Simpson. Physicians pick medically acceptable supplies and agree to use them for the term of the contract. Then, the contracting team negotiate pricings with the medically acceptable manufacturers.

“Our pricing tends to be somewhere between 6 and 12 percent better than national GPO pricing,” says Simpson. “I am often asked how we do it. The way we can do it is by driving total compliance. We are a 90 to 95 percent sole-source, contract-compliant organization.”

Building on the success of the co-op, the two IDNs set up LeeSar, a self-distribution organization, to replace its traditional med/surg distributor. In its 60,000-square-foot facility in Lehigh Acres, Fla., LeeSar stores 3,000 medical/surgical supplies, and makes at least two daily deliveries to member hospitals. As a result, the facilities do not need to store a large inventory of supplies onsite.

Since its inception, LeeSar has kept its overhead down. “We’ve maintained our overhead at a fixed rate charged back to the hospitals at 6.5 percent,” says Simpson. LeeSar maintains a 95 percent fill rate with 99 percent accuracy and delivers goods to member hospitals within 24 hours. Hospitals can also order special request items.

Custom sterile packs
In November 2005, LeeSar expanded its role by manufacturing and delivering custom sterile surgical packs to users. Although the hospitals were satisfied with the surgical packs they received from Cardinal Health, LeeSar believed it could save money and improve efficiency in the OR by packaging its own. The homemade packs offer the hospitals greater flexibility, says Simpson. LeeSar can change their contents in 30 days as opposed to four to six months, as required by major distributors.

The custom surgical packs contain everything needed by a surgeon, including gowns, instruments and disposable items. They vary in size and contents, depending on the type of surgery. Presently, LeeSar is packaging 60 different packs.

When ordering packs from a national distributor, cost is always an issue, says Simpson. “The costs seem to keep going up and the components change,” he says. Sometimes the companies make substitutions without alerting the surgeons. “The real challenge is carrying the four-to-six-month production commitment,” says Simpson. If a nurse or surgeon makes a change to their pack request, a hospital could be sitting on four to six months’ worth of inventory.

“All the companies that do this are very good companies, but they have to service a multitude of customers,” says Simpson. They stock, manage and carry the overhead for many products. “It’s the same situation for us, but we make the packs just for us. We don’t have to carry a lot of inventory for other people.”

LeeSar executives realized that by bringing the production of surgical packs in-house, they could make changes in 30 days without waste. Consequently, only 30 days worth of inventory is maintained on its shelves. LeeSar can also produce and deliver a pack in a week.

LeeSar’s VP of Finance, Gayle Reynolds, estimates that the packs will save the two hospital systems $300,000 to $350,000 per year. But there’s an even larger issue involved, says Simpson – making sure the medical staff has the tools necessary to care for the community.

Implementing pack production
Before the first pack could be assembled, LeeSar needed to purchase the components for the packs. The organization formed a cross-functional team comprised of business and clinical representatives from Lee Memorial Health and Sarasota Memorial Health. Cooperative Services of Florida was brought in as well, because it would be responsible for negotiating with manufacturers for the packs’ components. The distribution center set up par levels and was given responsibility for ordering the correct amount of components needed to build the packs. A partnership was formed with Tampa, Fla.-based American Contract Systems, a contract packaging and sterilization company, to sterilize the components. A manager was hired to oversee the whole operation.

Once the clinical staff determined what components were medically acceptable, Reynolds and her staff began negotiating line-item pricing on more than 400 items. “A surprising thing came out of those negotiations,” she says. “We knew that we could save money on the actual production part. We didn’t know how the component negotiations would go, but we did actually save money on the individual components themselves.”

As the negotiations were underway, a clean room for assembly was built at the distribution center. By February, the components for the surgical packs started arriving.

Manufacturers weren’t receptive to the idea of shipping non-sterile items to an acute care facility, says Simpson. LeeSar often had to go to senior management for these negotiations. “We had to rework and redefine our relationships with these companies to make them understand that we were doing something different,” he says.

A deal was struck between LeeSar and Kimberly Clark, in which the manufacturer agreed to ship non-sterile items directly to LeeSar. Simpson says that LeeSar is careful to isolate the raw material from sterile components. LeeSar then ships non-sterile items to American Contract Systems for processing. This arrangement is only temporary, however. After construction of the clean room is complete, sterilized components will be packaged at LeeSar by four new employees. Simpson is intent on in-house sterilization using ACS’s technology and paying the company per application. Plans for this are still in the works.

Keeping down costs
Nurses and clinicians like custom packs because of their efficiency. But in the past, hospital administrators didn’t share the feeling, primarily because of the cost. No wonder: Together the two hospital systems spent $3 million on them. “Now we found a middle ground,” says Simpson. “We found a way to get the cost down, but give the custom pack to the clinician so he or she can do their job. It’s a nice marriage for both parties.”

A user group from each hospital system provides feedback on the packs. Nurses can make changes through a formal request process that complies with federal regulations.

Simpson says that Lee Memorial Health and Sarasota Memorial Health have found a way to control the destiny of their costs through the custom pack program as well as self-contracting and self-distribution. “We’ve taken it [control] out of a third party’s hands, we’ve taken it out of other manufacturers’ hands and brought it in here,” he says.

Linda Alter is a writer for The MAX, the on-line supply chain community and national accounts database of U.S. Lifeline, an MDSI company. She may be reached at lalter@mdsi.org.